The Reduction of Systemic Risk in the United States Financial System

64 Pages Posted: 10 May 2010

Date Written: February 26, 2010

Abstract

The central problem for financial regulation is reducing systemic risk. Systemic risk is the risk that the failure of one significant institution can cause or significantly contribute to the failure of other significant institutions. This paper addresses the five most important policies for dealing with systemic risk: the imposition of capital requirements, the use of clearinghouses and exchanges for over-the-counter derivatives, the resolution of insolvent institutions, emergency lending by the Federal Reserve and the structure of the regulatory system. The author also argues that the Volcker Rules and related limitations on bank size would not reduce systemic risk.

Keywords: Volcker Rules, Capital Requirements, Clearinghouses and Exchanges, Derivatives, Resolution Procedures, Emergency Lending, Federal Reserve, Regulatory Structure, Regulatory Reorganization

JEL Classification: G1, G2, G3, G18, G21, G28, G38, K2

Suggested Citation

Scott, Hal S., The Reduction of Systemic Risk in the United States Financial System (February 26, 2010). Available at SSRN: https://ssrn.com/abstract=1602145 or http://dx.doi.org/10.2139/ssrn.1602145

Hal S. Scott (Contact Author)

Harvard Law School ( email )

1557 Massachusetts Avenue
Cambridge, MA 02138
United States
617-495-4590 (Phone)
617-495-9593 (Fax)

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